in a recent On a winter morning in New Delhi, Rajan Anandan and Pieter Kemps were pacing the floor of a five-star hotel, quizzing a group of more than two dozen young start-up founders about their goals. One founder set his sights on getting the most downloads in the mobile gaming category. Another committed to reaching an annual recurring revenue of $100 million in a few years.
“When you think about how big you want to get, don’t think about $100 million or $200 million in revenue,” Anandan told the gathering, now completely silent.
“It doesn’t matter what company you’re building; that’s not thinking big enough at all. There is no lasting company on the planet that has $100 million in revenue. An enduring company is one that generates $100 million in free cash flow a week,” he said.
Sequoia partners spent the next two hours walking the founders through more than a dozen slides, emphasizing that consistent growth over a long period of time, even if it doesn’t skyrocket quarter after quarter, can evoke billion-dollar companies. Dollars.
Underpinning his strong conviction is a bet that India and Indonesia and other markets in South Asia will double and triple their GDP in the next 10 to 15 years, and public markets and technology companies are poised to take on a significantly larger role. wide in that magnification.
The combined market capitalization of the top five technology companies in the US is more than $7 trillion, contributing to more than a quarter of the nation’s GDP. China’s top five tech companies, with a market capitalization of more than $1 trillion, contribute 7% of the nation’s GDP. But the top five tech companies in India and Southeast Asia have a market capitalization of just $140 billion, which is just 2% of their GDP.
The 12 startups assembled in the presentation room had been handpicked from approximately 3,600 applicants for the latest cohort of Sequoia’s four-year, early-stage Surge program. Surge launches two cohorts each year, with between 10 and 20 startups each.
The new cohort features startups operating in a broad space: global chalice is helping companies choose better carbon credits and reinventing the rating system; arintra is an AI-powered autonomous medical coding platform to help US hospitals get paid better and faster by automating insurance claim submission; Ferment is making it easier for couples to access wedding-related services; Danger is a curated marketplace for high-quality household products; alternate world is building a metaverse gaming platform to help Gen Z gamers create custom 3D worlds; and Frost is building virtual worlds and synthetic data sets that AI teams can use to train their models for applications.
say who offers affordable, on-demand products and services for a variety of health and beauty needs; Masterchow wants to help people prepare Asian meals at home; Metastable Materials is attempting to pioneer a low-cost, clean, and highly scalable method of recycling lithium-ion batteries; red brick AI is a SaaS platform to help companies create medical imaging AI; Required wants to help developers and QA engineers test and debug web applications in real time; and about children is building a breeding ecosystem in Indonesia.
The Thursday morning sessions, attended by TechCrunch, were among a few dozen these founders will participate in in the coming months as Sequoia partners guide them through different aspects of building a startup. The workshops will teach founders how to think about the total addressable market. They will be given guidance on how to put together their technology architecture. Another will help them build mental models of when to switch from pursuing growth to improving the economy of the unit. And there is also a session to help founders draw their company’s vision and tagline. (In a nutshell, explain the problem you’re solving and how you’re solving it, and don’t make things sound boring, off-brand, or long.)
Sequoia has “coded” its learning of more than 50 years to assess the areas a founder needs help with on their journey and the obstacles they are likely to encounter, Anandan said in an interview. The storied firm’s vast resources — there are some 30 people who work diligently with these founders for months, offering help in dozens of areas — set it apart from its rivals in India, even at the start-up stage. There are very few venture firms operating in India that have such a large team, let alone for one of the focus areas.
Sequoia doesn’t have to work as hard to win early-stage deals: It started investing in India more than a decade ago and has minted 38 unicorns (of 102 total) in the nation and 11 in Southeast Asia. So what about the change of heart?
In the last eight years or so, many companies have tried to tackle the early-stage investment scene in India. Y Combinator gained momentum in the South Asian market after a handful of successful early picks like Meesho, Razorpay, and Clear, even as its ever-growing cast network has received fewer hits in recent years. Blume Ventures and Arkam Ventures have built reputations for being founder-friendly and have raised larger funds, backing many of the startups that the larger funds lost. Tanglin Venture Partners, Antler and Good Capital have also earned their place in the market.
“Sequoia was seen as a Series A and B investor in the past,” said one high-profile investor, who in his previous tenure competed with Sequoia. “Seed was not a major focus for them, but they clearly wanted to get in early as offers started to get more expensive in the market.” In Anandan, they found someone who had made more than 100 investments in India in his personal capacity and had the Google credentials to fuel his efforts, another investor said.
An angel investor, who also requested anonymity to speak candidly, said that Sequoia’s Surge is the Indian vehicle and SEA’s answer to Y Combinator, undermining the American accelerator in a number of ways.
Since last year, YC has been offering startups $500,000, where $125,000 gets them a 7% stake in the start-up and the rest is invested in a SAFE note that becomes equity in the next round of startup. Sequoia, by comparison, offers up to $3 million.
“Sequoia’s boutique of offerings is also much larger in terms of resources, support, and unlike YC, Sequoia is consistent with not picking multiple startups doing the same thing in the same batch, and keeps the cohort size fairly small and diverse. So you have a different vibe when you get picked on Surge versus if YC picks you,” the investor said.
Certainly though Surge seems to have a much higher strike rate than YC in India: Surge portfolio firms Doubtnut, Scaler, Khatabook, ShopUp, Bijak, Classplus, Hevo Data, InVideo, Juno, BukuKas, Atlan, LambdaTest, Plum, Absolute, ApnaKlub are among those that have raised multiple rounds; hasn’t coined a unicorn yet. (The firm said its portfolio startups have raised more than $2 billion in follow-up funding rounds.)
But over the years, as many investors have recognized, Surge has outperformed its rivals.
“They have built a great brand. Sequoia and Surge are the first choice for startups to raise capital. They have high-quality programs, promise to network with the best of the best, and have an overall great support team,” said the early investor, who, like others, requested anonymity to speak candid.
Anandan, and indeed many other Sequoia partners over the years, have always dismissed the idea that their company is trying to compete with YC on seed deals. “We have great respect for them,” he said in the interview.
Lightspeed and Accel, two venture funds that are closer rivals to Sequoia in India than most others, have also tried to create their own Surge rivals, but have been unable to make similar headway.
What made the Surge get the mileage it does? After several tries, this is the best I could get out of Anandan: “You have to have a very high caliber commitment of resources. We have invested more than most venture firms through Surge alone. And execution is the easiest thing to talk about, but the hardest thing to do in life and in business.”
